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Informed Finance and Technological Conservatism

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  • Raoul Minetti

Abstract

This paper studies an economy in which firms can operate either a mature or a new technology and lenders acquire information on the productive assets of the borrowing firms that are eligible as collateral. We demonstrate that when contracts are imperfectly enforceable informed lenders offer inexpensive funding for the mature technology but may choose not to finance the new one, seeking to preserve the value of their information on the mature assets. Using firm-level data from Italy, we find that banks that establish long-term relationships with firms promote technological progress on average. However, we find that relationship banks inhibit innovations that entail a large depreciation of existing technology-specific information such as radical innovations. Copyright 2010, Oxford University Press.

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Bibliographic Info

Article provided by European Finance Association in its journal Review of Finance.

Volume (Year): 15 (2010)
Issue (Month): 3 ()
Pages: 633-692

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Handle: RePEc:oup:revfin:v:15:y:2010:i:3:p:633-692

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Cited by:
  1. Raoul Minetti & Pierluigi Murro & Monica Paiella, 2011. "Ownership structure, governance, and innovation: Evidence from Italy," Discussion Papers 1_2011, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
  2. Maurizio Iacopetta & Alessandro Giovannini & Raoul Minetti, 2013. "Financial markets banks and growth: disenttangling the links," Sciences Po publications 2013-23, Sciences Po.
  3. Pierluigi Murro, 2013. "The Determinants Of Innovation: What Is The Role Of Risk?," Manchester School, University of Manchester, vol. 81(3), pages 293-323, 06.

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